Monetizing IP in China

Jili Chung, ???, 鐘基立

• Publisher: EHGBooks
• Year: 2016
• eBook ISBN: 9781625036056
• Edition: 1
• Topic: Law
• Subtopic: Copyright Law
• Index: Law

Preface

This book consists of three parts.
Part I covers facts. It provides straight forward state-ments of various stories or incidents relating to IP monetization in China.
A reader may feel the observations, though fascinating, are somewhat disorganized. That is exactly the case in China. So, we need Part II.
Part II organizes and analyzes these facts with “three axes” that dominate any IP monetization deal. The three axes are IP’s creation, IP pledge (IP as collateral to a loan), and risk mitigation.
In this part, we conduct the analysis against the developing regulatory regime. This provides additional infor¬mation to a more serious planner for IP monetization in China.
Part III is a concise endnote highlighting certain strategic guidelines for IP monetization in China.
We assume the readers to be foreign investors in China or foreign entities in other countries hoping to benefit from enhancing their IP utilization in China. Such readers may have a grasp of the basics when it comes to the Chinese IP environment, but are seek-ing a better understanding of the most recent phenomena, or hope to improve their approach in seizing the opportunities of IP monetization in China.
Readers who will most benefit from this book are: (1) promoters wishing to monetize their IP in China, (2) foreign investors in China, especially those in cul-tural and creative industries or high-tech industries, (3) legal, accounting or consulting professionals ad-vising on doing business in China, and (4) observers or commentators following China’s development in the IP regime.
Special thanks to Huan-Yi Lin, who comments on the substance of the content, to Paul Bendemire, who contributes his views from a perspective of global IP professional, and to T-Bone (Eric Shih) and Amber Yu for their art and design.

This book includes the following features about IP monetization in China

First-time disclosed real life cases and market intelligence
up-to-date statistics
? Effective analytical tools to decipher the contemporary phenomena
? Insights and observations on the trends
? A concise strategy summary for seizing business opportunities

Readers who will most benefit from this book are:
? Promoters wishing to monetize their IP into China
? Foreign investors in China, especially those in cultural and creative industries or high-tech industries
? Legal, accounting or consulting professionals advising clients on doing business in China
? Observers or commentators following China’s development in IP regime

Part I      Observations on IP Monetization in China

 

Part I covers social and economic observations relating to IP monetization in China. It provides a snapshot of the current situation. It is more focused on factual introduction. More in-depth, insightful analysis is provided in Part II.

As a preview, each observation will deliver key messages as below:

1. Highlights of dynamic development: The selected highlights cover topics of the most popular market intelligence about IP monetization in China, a good quick overview of the current status for the first-timer to this energetic environment.
2. Planned economy and regulatory regime: One can really understand China only after understanding the role of the planned economy and hierarchy of its regulatory regime. They may not appear organized at glance. However, if interpreted with the right angels, the apparent chaos immediately becomes sensible. Fundamental principles, policies, and regulatory regimes, are actually consistent, coherent and predictable.
3. Spirit of experimentalism: Spirit of experimentalism or pragmatism provides an insightful view to the social and economic regimes. They also provide complementary perspectives to better understand the regulatory regime. This is especially true for IP monetization. The philosophy can sometimes serve as a compass for steering IP monetization projects through uncharted waters in China.
4. From quantity to quality: Quantitative changes may result in qualitative changes. This rule applies well to IP monetization in China. Such transformation is taking place in IP monetization with several driving forces.
5. Excess liquidity in certain sectors: Economic restructuring and excess liquidity are not only hot topics in China but also present opportunities. As government is tackling these issues, private money is eager to seek investment targets, fueling IP monetization.

 

1. 
   

1. Highlights of Dynamic Developments

.1. Sizable IP pools being created

China is well known for its volume of population, consumption, foreign exchange reservation, etc. A small percentage of variation to the volume often causes a non-ignorable magnitude to the global economy.

This applies to the IP area, too. But, it should be good news for IP monetization. The voluminous base of IP may serve as a potential “IP pool” (i.e., the collection of the patents or trademarks filed at the China patent office) for deals.

The sizable volume can best be understood through a comparison below.

In comparison with Taiwan, a major player in the global high-tech supply chain, the growth rate of China’s IP pool is clear.

In the year 2014:

- China’s total number of patent applications was 928,177, about 20 times the 46,378 of Taiwan.

- China’s total number of trademark applications number was 2,285,000, about 30 times the 75,933 of Taiwan.

In the year 2015, the multiplier enlarges further:

- China’s total number of patent applications grew to 1,102,200, compared to the 44,415 of Taiwan.

- China’s total number of trademark applications grew to 2,876,000, compared to the 78,523 of Taiwan.

Comparison with other global players is illustrated in Exhibit 1 below.

Exhibit 1: Worldwide patent application filing trends (2004-2014)

.2. IP pledge

IP pledge (using IP, such as patent or trademark rights, as collateral for a loan; see Part II Section 2 for detailed definition and illustration) is an important tool for structuring IP monetization. Both the volume and complexity of IP pledge deals are increasing in recent years in China. The summary below shows the big picture.

Patent Pledge

- Accumulated loan balance: 49 billion RMB in 2014; 56 billion RMB in 2015.

- During the 5 successive years prior to 2014, the annual growth rate was about 100%.

- This platform has high growth potential. More in-depth analysis and its implications to IP monetization are provided in Part 2 Section 2.

Trademark Pledge

- Accumulated loan balance: 51 billion RMB in 2015.

- Trademark pledge has been a common practice in China.

- The average amount of loans using trademark rights as collateral: 1 million RMB.

- The recorded largest loan is 0.2 billion RMB (the underlying pledged trademark right in this loan is assessed to be 5 billion RMB).

Copyright Pledge

- Accumulated loan balance: 2.9 billion RMB in 2015.

- Copyright pledge is common for television and movie production, cultural and creative industries. Just to name a few:

• As early as 2005, the movie Curse of the Gold Flower¹ secured a 10 million USD loan with collateral of the pre-sale contract of the box office (i.e., the rights to the sales revenue under the pre-sale contracts, a form of royalties derived by the copyright, are pledged to the lender).

• In 2007, the movie Assembly² secured a 0.5 billion RMB loan with IP as collateral in its early stage of production.
• In 2008, the Beijing Municipal Government launched a pilot program for copyright pledge. Three major market players³ secured packaged loans with the collateral of a joint IP pool formed by their underlying copyrights.

.3. Experiments in novel IP financing

.3.1. IP pledge

As mentioned above, IP pledge is an important tool for IP monetization. The activity of IP monetization involving IP pledge is growing in China. The following 3 models have become commonly acceptable for copyright or ...

Table of contents

• Part I     Observations on IP monetization in China
• 1.1.     Sizable IP pools being created
• 2.1.     Color of planned economy
• 3.1.     Speech during Deng Xiaoping's South China Tour in 1992
• 4.1.     IP pledge transaction
• 5.     Excess Liquidity in Certain Industry Sectors
• Part II     Analysis Using 3 Axes
• 1.1.     The IP movie phenomenon
• 2.     The Second Axis – IP Pledge
• 2.1     Current frameworks
• 2.2     Characteristics of the development
• 3.1     The function of IP insurance
• 3.2     Insurance policies available in China
• 3.3     An illustrative case of patent insurance
• Part III      Strategy Guidelines
• 2.     Develop Win-Win Strategies
• 3.     Occupy the High Ground with an Edge in IP